Race to election: Will the uncertainty end for foreign financial services providers?

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Race to election: Will the uncertainty end for foreign financial services providers?

Race to election: Will the uncertainty end for foreign financial services providers?

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January 20, 2025

Background

As the year begins and the first potential sitting days for the Senate approaches, the pressing question for foreign financial service providers is whether the replacement exemption regime set out in draft legislation will indeed commence on 1 April 2025.

ASIC had already extended for a further 12 months the transitional licensing relief for financial services provided from offshore to Australian clients which were due to expire on 31 March 2025 (now expiring 31 March 2026). It was expected that during this transitional period, financial service providers would be able to determine their eligibility and notify ASIC of their intention to comply with the exemption conditions or apply for a foreign financial services licence.

Alongside the uncertainty for how the licensing regime would apply, in October 2024, the Australian Securities and Investments Commission (ASIC) reissued its Regulatory Guide 121 Doing financial services business in Australia (RG 121) which is intended to assist offshore providers to determine whether they even cross the threshold to be carrying on a financial services business in Australia and whether the licensing regime (or exemptions) are relevant. In particular ASIC has updated its references to the Courts’ interpretation of ‘carrying on a business in Australia’ including additional examples.

Status of the proposed exemptions for foreign financial services providers

The Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 was introduced into the House of Representatives on 30 November 2023. This bill included other updates and amendments to legislation, however the proposed superannuation tax changes were proven to be contentious. The Senate split the bill into two. Assuming the Senate resumes this year in early February (which is subject to whether an election is called before then), the exemptions (which reportedly had wide support) may yet be passed through Parliament.

If it passes through Parliament, the exemptions for FFSPs are set to commence on 1 April 2025.

Key amendments to RG 121

The amendments in the reissued RG 121 include updates to:

the courts’ interpretation of what constitutes ‘carrying on a business in Australia’
definitions and references to financial products and services, guidance and regulatory documents
update of exemptions available to FFSPs.

We explore some of the latest amendments in further detail below.

Amendments to RG 121	Explanation of the change
How courts interpret ‘carrying on a business in Australia’	RG 121 now references updated cases on whether a foreign individual or company is ‘carrying on a financial services business’ in Australia. There is some additional guidance in relation to one-off transactions, which may be captured if it is the first in a series of transactions. Previous guidance focussed on the significance of that single transaction. Probably most significant is the updated cases referred to. Previously it was generally unclear the extent to which similar legislation could be considered if it was being applied in another regulatory regime. The cases now also include a similar (expansive) application to online businesses under Privacy Law. Balancing this is the reference to the long-established Gebo Investments decision which still required some conduct in Australia to be carried out.
Key concept of financial products	Includes updated references to the concept of a financial product. This introduces ‘carbon credits’, but also not expressly includes FX contracts and a ‘deposit-taking facility made available by a bank’. Foreign exchange contracts is not a new concept as the previous guidance included certain exemptions in relation to them. The deposit-taking facility is somewhat misleading as omitted from section 764A is that it must be made available by an ADI (which does not necessarily apply to a foreign bank that may be accessing this guidance).
Updated appendix of exemptions available to FFSPs	RG 121 has updated the useful summary of circumstances in which exemptions may apply. Unfortunately this did not include the proposed licensing exemptions referenced above (which may come into effect on 1 April 2025), although a reference to the potential exemptions is noted.

What these changes mean

While the amendments to RG 121 are not obvious, in the lead up to assessing whether the new exemptions (if finalised) will impact them, foreign entities and individuals should use the opportunity to reassess whether their financial service operations will fall under the updated definition of ‘carrying on business in Australia’, given the potentially broader application, in particular to businesses predominantly present online. We will also know shortly whether the new exemptions will become law and whether the transition away from the current exemptions can begin… or be delayed for another year (or more).

If you require assistance or would like clarification in relation to any of the above, please reach out to our team.